Bond salesmen working out of strip malls across America pitched GWG Holdings Inc. as a good investment. The company would use money raised from bond sales to buy life-insurance policies from people who wanted cash up front, then collect the payouts when those people died. Investors, many of them elderly and retired individuals, put $1.3 billion into the bonds. What many of these retail investors didn’t know was that GWG’s founders and a board director would each use the money to fund and launch their own startup ventures, then move them out of the investors’ reach, WSJ Pro Bankruptcy reported. The roughly 27,000 individuals who bought GWG’s unique debt securities, known as L Bonds, are now facing huge potential losses — for many, their retirement nest eggs. Since 2018, GWG has invested at least $230 million into former chairman Brad Heppner’s alternative-finance startup, the Beneficient Group Co LP, which aims to help wealthy people and institutions convert illiquid assets into cash. The company also put $28 million into FOXO Technologies Inc., a biotech venture backed by GWG founder Jon Sabes, which uses saliva tests to harvest people’s DNA and predict when they are likely to die. But GWG no longer controls either of the startup ventures. Mr. Heppner, Mr. Sabes, and their associates carved out both ventures as independent entities shortly before the company collapsed into bankruptcy in April. The judge overseeing the court proceedings in Houston said he had never before seen a company give up control of everything it owns before seeking chapter 11 protection. GWG, which employed 160 people as of December 2020, is now a shell operation with just two employees remaining. The company is under investigation by the Securities and Exchange Commission, and faces lawsuits from investors who claim they were defrauded. GWG has denied wrongdoing and said it fully disclosed its business risks to investors.
